Freight depends on reliable funding of infrastructure, rail exec says

RoseBy DENNIS GRUBAUGH A top railroad executive says the St. Louis region’s development as a freight hub depends in part on America’s ability to address its major infrastructure shortcomings. And the solution, says Matthew Rose, rests in the federal and state governments’ willingness to implement gas tax increases and user fees that are politically unpopular but long overdue. Rose, the chairman of Burlington Northern Santa Fe, was guest speaker at the Second Annual Freight Summit sponsored in May by St. Louis Regional Freightway. The Freightway is an enterprise of Bi-State Development founded in 2014 to coordinate regional freight development. Freightway officials believe that public and private freight investment will support a quarter-million jobs in years to come. The Freightway has been attempting to connect private and public sectors while promoting the region’s advantages. Those strengths include access to four interstates, six Class I railroads, the Mississippi River, five airports, two international cargo shipping airports and two foreign trade zones. Rose appeared at the invitation of former Congressman Jerry Costello, who he has known for many years. Costello, who now runs a lobbying firm, has been working with the Freightway on a variety of projects, including replacing the aging Merchants Bridge, the Mississippi River rail crossing in Venice. Rose has served 13 years as chief executive officer at BNSF and 11 years as chairman. During that time, the company was acquired by Berkshire Hathaway and today operates on 32,000 miles of track in 28 states and in Canada. BNSF is one of the top transporters of agricultural products, coal, and industrial and consumer goods. Rose said he started his career in downtown St. Louis while with Missouri Pacific Railroad (now Union Pacific). He lived with other MoPac trainees in South County. St. Louis is recognized as “quite unique around the country” because of its infrastructure assets, he said, and the region is doing the right thing by committing to freight growth. “We actually operate in many places where freight projects can’t get approved or built,” he said. Rose said freight growth requires a strong industrial economy, and recently that sector has begun to turn around. “Rail volumes are growing again. I think 2017 is going to reflect that. But prior to December 2016, the industrial sector saw 20 consecutive months of year-over-year declines,” he said. He believes the current administration’s willingness to come up with a $1 trillion infrastructure plan is vital, but implementing it tricky. “We have to be careful about how infrastructure spending is increased. Over the last few decades we’ve gotten away from a user pay system for funding highways that served us quite well. Today, taxpayers, through a general fund infusion into the Highway Trust Fund, are paying an increasing share of upkeep,” he said. That approach is fiscally unsustainable and amounts to a subsidy for the trucking industry, which disadvantages railroads and others in the supply chain who invest private money in their own infrastructure, he said. He said Congress did a good job designing a multimodal, freight-oriented framework in the last highway bill, the 2016 FAST (Fixing America’s Surface Transportation) Act. The problem is there was no correlated increase in the gas tax, leaving the general fund to continue to bail out the Highway Trust Fund, as it’s done since 2008. Meanwhile, the current FAST Act expires in 2020, and all funding will be in question. “We estimate that all funding for highways, local, state and federal, is about $115 billion a year. In 2002, 90 percent of federal transportation revenues came from the gas tax, or user fees if you will,” he said. “Between 2008 and 2016, that percentage decreased from 90 percent to about 70 percent.” The 18.4-cent per gallon federal gas tax was last raised in 1993 and is not indexed to inflation, which increased by a total of 64.6 percent from 1993 until 2015. Rose said purchasing power today is 40 percent below the 1993 levels, partly because fuel efficiency standards have decreased the amount of fuel being used — and taxes being paid. As a result, the states’ share of total highway spending is growing. At last count, 19 states have raised taxes and/or indexed them to inflation in recent years. Most of that money goes toward maintenance and falls short of keeping up. Illinois last raised its 34.01-cent gas excise tax by a penny in 1996, and there have been many attempts to raise it since. “I know how politically difficult it is to raise the gas tax, but the trucking industry is even leading the charge to do this,” Rose said. Alternative means of financing — fees upon certain commercial vehicles for instance — could be implemented more quickly than a gas tax and could be applied toward maintenance costs, he said. The U.S. transportation network is at a turning point, he said. Caps on infrastructure spending and an accelerated trend for speed increasingly threaten a system not designed for today’s commerce. Speeding the flow at key choke points is critical. And permits for major construction projects take far too long, he said. Domestic intermodal (using a combination of truck, rail, water or air for shipping), meanwhile, is growing, benefiting from a lower price of fuel. “In the long run, we believe domestic intermodal remains our largest potential area of growth,” he said. The U.S. Department of Transportation estimates the greater St. Louis region will see an increase of 70 percent in multimodal freight activity by the year 2045, from around $277 billion in 2012 to about $400 billion in 2045. “It sounds impossible when you listen to those numbers, but I go back to 1980 in this town and you can look around and see the growth that’s already taken place and know that with population growth these numbers are going to be true,” Rose said. BNSF moves about 4.8 million carloads of freight across Missouri every year. “Just imagine what I-70 would look like on a Friday afternoon if this railroad wasn’t here doing that,” he said. “As a country, we should want more freight on the railroads, not less,” he said. Highways would get less wear and tear, and congestion would be reduced. Railroad innovation is limited by public policy regulations that favor the current system of highway funding, he said. Despite that, BNSF has invested more than $55 billion in efficiency projects since 2001. This year’s capital investment alone will be more than $3.4 billion, he said. Local leaders have been working to obtain FAST Act funds to help overhaul the Merchants Bridge, and Rose hopes such projects remain a federal-funding priority, along with projects like “first and last mile” freight collectors and highway grade separations where population and congested roadways have grown up around each other. States seem more willing to pass tax increases than the federal government, he said. “What’s happened is we’ve lost sight in this country that the gas tax truly is a user fee. But some critics don’t see it that way. We’re going to have to figure it out. This infrastructure system — whether it’s waterway systems, railway systems, transmission grids, airports — all these big networks were built by our parents and in some cases our grandparents. We have to figure how to pay to keep them up.” “My hope would be they would give (gas tax money) to the states that have projects already permitted, or to states that are willing to speed up the permitting process. Right now, permits for a federal highway project can take anywhere from seven to 15 years,” Rose said. “That would put the states in a position to invest. At the end of the day, the local communities really know where that money should go much better than the federal government.” Asked if there was one thing he could do to help the freight industry, he said it would be to speed up the permitting process, which has become too tied up with environmental concerns. Railroads have seen a shift in their revenue. Coal, for instance, accounted for 7.7 million carloads a year in 2008, and only about 4 million fewer by 2016. That’s a decrease from about 25 percent of the railroad’s revenue to 15 percent today. Last year, industrial product volumes were down about 8 percent mainly due to the cargo shipments dropped because of petroleum market declines, he said. Growth in consumer products — which represents more than 50 percent of BNSF’s business — was modest in 2016 and is up only slightly this year. International volume from the West Coast ports was down more than 60,000 units last year. Ag product shipments were up 6 percent in the past year, he said.